TATA CONSULTANCY SERVICES LIMITED versus VISHAL GHISULAL JAIN, RESOLUTION PROFESSIONAL, SK WHEELS PRIVATE LIMITED on 23 November 2021

SUPREME COURT REPORTS

[2021] 10 S.C.R.

ATATA CONSULTANCY SERVICES LIMITED

v.

VISHAL GHISULAL JAIN, RESOLUTION PROFESSIONAL,SK WHEELS PRIVATE LIMITED

(Civil Appeal No. 3045 of 2020)

B

NOVEMBER 23, 2021

[DR. DHANANJAYA Y CHANDRACHUDAND A. S. BOPANNA, JJ.]

Insolvency and Bankruptcy Code 2016 – s.60(5)(c) –CContractual dispute – Residuary jurisdiction of NCLT u/s.60(5)(c),if can be invoked – Build Phase Facilities Agreement entered intobetween appellant and respondent-Corporate Debtor, followed bya Facilities Agreement – Corporate Debtor provided premises withcertain specifications, facilities to the appellant for conductingexaminations for educational institutions – Termination notice issuedDby appellant – Ad-interim stay on the notice granted by NCLT –Order upheld by NCLAT – On appeal, held: Appellant was availingthe services of the Corporate Debtor and was using the propertyleased by it – Before the initiation of Corporate InsolvencyResolution Process (CIRP), the appellant had on multiple instancesEcommunicated to the Corporate Debtor that there were deficienciesin its services and that the penalty and termination clauses of theFacilities Agreement may be invoked – Residuary jurisdiction ofthe NCLT cannot be invoked if the termination of a contract is basedon grounds unrelated to the insolvency of the Corporate Debtor –In the present case, there is nothing to indicate that the terminationFof the Facilities Agreement was motivated by the insolvency of theCorporate Debtor – Thus, NCLT does not have any residuaryjurisdiction to entertain the present contractual dispute which arosedehors the insolvency of the Corporate Debtor – Judgment of NCLATset aside – Proceedings initiated against the appellant dismissedGfor absence of jurisdiction.

Insolvency and Bankruptcy Code 2016 – s.238 – Held: s.238provides that the IBC overrides other laws, including any instrumenthaving effect by virtue of law.

Insolvency and Bankruptcy Code 2016 – ss.14, 60(5)(c) –HHeld: In Gujarat Urja Vikas v. Amit Gupta & Ors. reported as 2021 (3)

SCALE 776 it was held that the NCLT’s jurisdiction is not limited bys.14 in terms of the grounds of judicial intervention envisaged underthe IBC – It can exercise its residuary jurisdiction u/s.60(5)(c) toadjudicate on questions of law and fact that relate to or arise duringan insolvency resolution process – Further, narrow exception craftedin Gujarat Urja must be borne in mind by the NCLT and NCLAT evenwhile examining prayers for interim relief – Exercise of the NCLT’sresiduary powers should be governed by the said decision - Note ofcaution issued to the NCLT and NCLAT regarding interference witha party’s contractual right to terminate a contract.

Disposing of the appeal, the Court

HELD: 1.1 Section 238 provides that the IBC overridesother laws, including any instrument having effect by virtue oflaw. Section 60(5)(c) grants residuary jurisdiction to the NCLTto adjudicate any question of law or fact, arising out of or in relationto the insolvency resolution of the Corporate Debtor. Clause 12(d) of the Facilities Agreement provides that any dispute betweenthe parties relating to the agreement could be the subject matterof arbitration. However, the Facilities Agreement being an‘instrument’ under Section 238 of the IBC can be overridden bythe provisions of the IBC. The existence of a clause for referringthe dispute between parties to arbitration does not oust thejurisdiction of the NCLT to exercise its residuary powers underSection 60(5)(c) to adjudicate disputes relating to the insolvencyof the Corporate Debtor. [Paras 18, 21][1094-A-B; 1096-B-C,E-G]

Indus Biotech (P) Ltd. v. Kotak India Venture (Offshore)Fund Decision of Supreme Court dtd.26.03.2021 inArbitration Petition (Civil) No.48 of 2019 – relied on.

1.2 While the duty of the RP and the jurisdiction of the NCLTcannot be conflated, in Gujarat Urja, this Court has clarified thatthe RP can approach the NCLT for adjudication of disputes whichrelate to the insolvency resolution process. But when the disputearises dehors the insolvency of the Corporate Debtor, the RPmust approach the relevant competent authority (para 72). TheNCLT in its residuary jurisdiction is empowered to stay thetermination of the agreement if it satisfies the criteria laid downby this Court in Gujarat Urja. In any event, the intervention by AB

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Athe NCLT and NCLAT cannot be characterized as the re-writingof the contract between the parties. The NCLT and NCLAT arevested with the responsibility of preserving the CorporateDebtor’s survival and can intervene if an action by a third partycan cut the legs out from under the CIRP. [Paras 22, 23][1097-B, D-E]B

Gujarat Urja Vikas v. Amit Gupta & Ors. (2021) 7 SCC209 : 2021 (3 ) SCALE 776 – relied on.

1.3 Admittedly, the appellant is neither supplying any goodsor services to the Corporate Debtor in terms of Section 14 (2)nor is it recovering any property that is in possession or occupationCof the Corporate Debtor as the owner or lessor of such propertyas envisioned under Section 14 (1) (d). It is availing of the servicesof the Corporate Debtor and is using the property that has beenleased to it by the Corporate Debtor. Thus, Section 14 is indeednot applicable to the present case. However, in Gujarat Urja itwas held that the NCLT’s jurisdiction is not limited by Section 14Din terms of the grounds of judicial intervention envisaged underthe IBC. It can exercise its residuary jurisdiction under Section60(5)(c) to adjudicate on questions of law and fact that relate toor arise during an insolvency resolution process. Before theinitiation of the CIRP, the appellant had on multiple instancesEcommunicated to the Corporate Debtor that there weredeficiencies in its services. The Corporate Debtor was put onnotice that the penalty and termination clauses of the FacilitiesAgreement may be invoked. This is evident from the appellant’scommunications dated 1 August 2018, 17 September 2018, 1October 2018 and 11 October 2018. In its email dated 13 OctoberF2018 the appellant specifically noted that the housekeeping staffbeing provided by the Corporate Debtor was inadequate. Theappellant was apparently constrained to deploy its own staff forhousekeeping, evinced from its email dated 19 November 2018.The Corporate Debtor has admitted that the appellant was usingits own housekeeping staff and deducting the costs from theGinvoice. The appellant again intimated the Corporate Debtor tochange faulty batteries of the UPS and provide cleaning productsin its email dated 3 February 2019. The termination notice dated10 June 2019 also clearly lays down the deficiencies in theservices of the Corporate Debtor. [Pras 24, 25][1099-E-G;1100-D-G]H

1.4 The residuary jurisdiction of the NCLT cannot beinvoked if the termination of a contract is based on groundsunrelated to the insolvency of the Corporate Debtor. It is evidentthat the appellant had time and again informed the CorporateDebtor that its services were deficient, and it was falling foul ofits contractual obligations. There is nothing to indicate that thetermination of the Facilities Agreement was motivated by theinsolvency of the Corporate Debtor. The trajectory of eventsmakes it clear that the alleged breaches noted in the terminationnotice were not a smokescreen to terminate the agreementbecause of the insolvency of the Corporate Debtor. The NCLTdoes not have any residuary jurisdiction to entertain the presentcontractual dispute which has arisen dehors the insolvency ofthe Corporate Debtor. In the absence of jurisdiction over thedispute, the NCLT could not have imposed an ad-interim stay onthe termination notice. The NCLAT has incorrectly upheld theinterim order of the NCLT. [Paras 26, 27][1101-D-G]

1.5 A note of caution is issued to the NCLT and NCLATregarding interference with a party’s contractual right to terminatea contract. Even if the contractual dispute arises in relation tothe insolvency, a party can be restrained from terminating thecontract only if it is central to the success of the CIRP. Crucially,the termination of the contract should result in the corporatedeath of the Corporate Debtor. The narrow exception crafted bythis Court in Gujarat Urja must be borne in mind by the NCLTand NCLAT even while examining prayers for interim relief. Theorder of the NCLT does not indicate that the NCLT has appliedits mind to the centrality of the Facilities Agreement to the successof the CIRP and Corporate Debtor’s survival as a going concern.The NCLT has merely relied upon the procedural infirmity onpart of the appellant in the issuance of the termination notice,i.e., it did not give thirty days’ notice period to the CorporateDebtor to cure the deficiency in service. The NCLAT, in itsimpugned judgment, has averred that the decision of the NCLTpreserves the ‘going concern’ status of the Corporate Debtorbut there is no factual analysis on how the termination of theFacilities Agreement would put the survival of the Corporate A

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ADebtor in jeopardy. Admittedly, this Court has clarified the lawon the present subject matter in Gujarat Urja after thepronouncements of the NCLT and NCLAT. The exercise of theNCLT’s residuary powers should be governed by the saiddecision. The judgment of the NCLAT is set aside. Theproceedings initiated against the appellant stand dismissed forBabsence of jurisdiction. [Para 28-31][1101-G-H; 1102-A;1103-A-E]

Ashoka Marketing v. PNB (1990) 4 SCC 406 : [1990]3 SCR 649; Embassy Property Developments (Private)Limited v. State of Karnataka (2020) 13 SCC 308 :C[2019] 17 SCR 559 – referred to.

Case Law Reference

From the Judgment and Order dated 24.06.2020 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No.237 of 2020.E

Ms. Fereshte D. Sethna, Ms. Anuradha Dutt, Aniket Nimbalkar,Ms. Suman Yadav, Abhishek Tilak, Ms. Aboli Mandlik, Ameya Pant,Ms. B. Vijayalakshmi Menon, Advs. for the Appellant.

Ms. Sowmya Saikumar, Ms. Udita Singh, Advs. for theFRespondent.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

1. This appeal arises from a judgment dated 24 June 2020 of the GNational Company Law Appellate Tribunal[1]. The NCLAT upheld theinterim order dated 18 December 2019 of the National Company LawTribunal[2] which stayed the termination by the appellant of its FacilitiesAgreement dated 1 December 2016 with SK Wheels Private Limited[3].1 “NCLAT”

2 “NCLT” or “Adjudicating Authority”H3 “Corporate Debtor” or “Respondent”

Factual Background

2. The appellant and the Corporate Debtor entered into a BuildPhase Agreement on 24 August 2015 followed by a Facilities Agreementon 1 December 2016. The Facilities Agreement obligated the CorporateDebtor to provide premises with certain specifications and facilities tothe appellant for conducting examinations for educational institutions.

3. Clause 11(b) of the Facilities Agreement states that either partyis entitled to terminate the agreement immediately by written notice tothe other party provided that a material breach committed by the latter isnot cured within thirty days of the receipt of the notice. Clause 11(b)reads as follows:

“11. Termination

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(b) Termination for Material Breach. Either party may terminatethis Agreement immediately by a written notice to the other Partyin the event of a material breach which is not cured within thirtydays of the receipt of the said notice period.”

4. A termination notice was issued by the appellant to the CorporateDebtor on 10 June 2019 which came into effect immediately. The partieshave contested the facts leading up to the issuance of the notice.

5. It has been submitted on behalf of the appellant that there weremultiple lapses by the Corporate Debtor in fulfilling its contractualobligations, which it failed to remedy satisfactorily. The appellant notifiedthe Corporate Debtor in its email dated 1 August 2018 that it intended toinvoke the penalty clause of the Facilities Agreement for the allegedcontractual breaches. Another email dated 17 September 2018 was sentto the Corporate Debtor regarding non-compliance with the agreement.Following a site visit, the appellant in its email dated 1 October 2018directed the Corporate Debtor to take urgent steps to remedy thebreaches. On 11 October 2018, the appellant put the Corporate Debtoron notice that it would be constrained to invoke the penalty and terminationclauses of the Facilities Agreement for the alleged non-compliance. On13 October 2018, the appellant addressed an email to the CorporateDebtor highlighting its concerns regarding the insufficiency ofhousekeeping staff and their malpractices in respect of enteringattendance. Eventually on 19 November 2018, the appellant intimated to A

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Athe Corporate Debtor that it will deploy its housekeeping staff and deductthe costs from the invoice. On 3 February 2019, the appellant wrote anemail to the Corporate Debtor raising issues of power supply and shortageof housekeeping staff, among other deficiencies.

6. The Corporate Insolvency Resolution Process[4] was initiatedBagainst the Corporate Debtor on 29 March 2019. The appellant hasalleged that it came to know about the CIRP against the Corporate Debtorwhen the Electricity Board disconnected the supply of electricity to theCorporate Debtor on 24 April 2019.

7. On 29 May 2019, the Corporate Debtor in its email alleged thatCthe appellant had failed to make the requisite payments and the electricitywas disconnected as a result. In its response dated 30 May 2019, theappellant stated that:

(i) It came to know that a CIRP was initiated against theCorporate Debtor when the electricity was disconnected; D(ii)There were no amounts due to the Corporate Debtor; and

(iii) It made the payments for periods before March 2019. Therewas a delay in making payments for March 2019 becausethe Corporate Debtor requested a change in bank accountdetails. No invoice was raised for April 2019.

E8. The appellant claims that the material breaches by the CorporateDebtor have resulted in a liability of Rs. 20,78,500. It did not initiaterecovery proceedings on account of the moratorium imposed underSection 14 of the Insolvency and Bankruptcy Code 2016[5].

9. The appellant issued a notice of termination dated 10 June 2019Fin terms of Clause 11(b) of the Facilities Agreement. The terminationnotice stated thus:

“Despite of all our sincere attempts in settling the crucial businessissues, we have always received unvaried response from yourend and these occurrences of non-observation has now culminatedinto breach of following terms and conditions of the Agreement.G1. Not maintaining the minimum level of skillset of personal onexam and non-exam days which is non-compliance as perAnnexure B, Table C, and also a process violation.

4 “CIRP”H5 “IBC”

2. Furnishing and Designing guidelines (Annexure B, Table D)not being adhered

a) Furniture broken condition

b) Temperature and ventilation in labs, server room and UPS roomsnot being maintained

c) Deploying housing staff

d) Cleanliness and up keeping of the center

3. Branding and Navigation not in synchronization with AnnexureF of facility agreement In view of all the aforestated events, consider this as a notice oftermination as per clause 11 (b) of the Agreement which entitlesTata Consultancy Services Ltd. (“TCS”) to terminate theAgreement with immediate effect by issuance of a written noticein the event of a material breach not being cured within 30 days.

Please take notice that the relationship between us as Client/ServiceRecipient and you as Service Provider/ Vendor/LISP standsterminated with effect from 10th June.”

10. On behalf of the Corporate Debtor, it is submitted that certainroutine operational requirements were highlighted by the appellant fromtime to time, which were rectified within a reasonable duration. TheCorporate Debtor has allegedly invested Rs. 8.35 crores to fulfil itscontractual obligations. According to the Corporate Debtor, thedeficiencies raised by the appellant in its letter dated 11 October 2018were remedied by the end of October 2018. The Corporate Debtor hasfurther submitted that certain other minor issues were cured by February2019. The deficiency in relation to the housekeeping staff provided bythe Corporate Debtor was allegedly cured when the appellant hired itsown staff. The Corporate Debtor has claimed that it complied with thedirections of the appellant intimated in its email dated 3 February 2019 inrespect of changing faulty batteries and providing cleaning products.The Corporate Debtor has further submitted that while the electricitywas disconnected by the Electricity Board in April 2019, it was eventuallyrestored. It is stated that certain meetings were held in April-May 2019where the Resolution Professional[6] informed the appellant that no A

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Aprejudice would be caused to it and all the services and facilities will beprovided according to the agreement, but the appellant unilaterallyterminated the agreement with immediate effect on 10 June 2019. TheCorporate Debtor has contested the issuance of the termination noticeon the ground that no material breaches have occurred, and, in any event,a thirty days’ period is to be given to a party to cure the defects beforeBthe agreement can be terminated under Clause 11(b) of the FacilitiesAgreement.

Proceedings before the NCLT and NCLAT

Proceedings before the NCLT and NCLAT

11. The Corporate Debtor instituted a miscellaneous application[7]Cbefore the NCLT under Section 60(5)(c) of the IBC for quashing of thetermination notice. The NCLT passed an order dated 18 December 2019granting an ad-interim stay on the termination notice issued by theappellant and directed the appellant to comply with the terms of theFacilities Agreement. The NCLT observed that prima facie it appearedthat the contract was terminated without serving the requisite notice ofDthirty days. The conclusion of the NCLT is extracted below:

“Further whether the termination is good or bad in law, is a matterof inquiry, which requires examination of the fact andcircumstances. In this scenario, we are of the prima facie viewthat the termination of the contract even without serving a noticeEto the corporate debtor is not correct.

In view of the same, we hereby stay the termination notice issuedby the respondent. Until then the respondent shall adhere to theterms of contract without fail.”

F12. Aggrieved by the order, the appellant preferred an appeal[8]before the NCLAT. The NCLAT by its order dated 24 June 2020 upheldthe order of the NCLT observing that it had correctly stayed the operationof the termination notice since the main objective of the IBC is to ensurethat the Corporate Debtor remains a going concern. The NCLAT referredto Section 14 to highlight that a moratorium is imposed to ensure theGsmooth functioning of the Corporate Debtor to safeguard its status as agoing concern. Further, it is the responsibility of the RP under Section 25of the IBC to preserve the Corporate Debtor as a going concern. Therelevant portions of the judgment are reproduced below:

7 Miscellaneous Application No 2954 of 2019H8 Company Appeal (AT) (Insolvency) No. 237 of 2020

“10…From the order it is seen that the Respondent herein wasappointed as Interim Resolution Professional (in short IRP) tocarry out the functions as per law. In view of Section 14 once amoratorium was imposed by the Adjudicating Authority InterimResolution Professional the Interim Resolution Professional willbe at the helm of affairs of the company in view of the suspensionof the Board of Directors of the ‘Corporate Debtor’. As on thedate of the imposition of moratorium the business and activities ofthe ‘Corporate Debtor’ will have to be carried out for smoothfunctioning of the company and the company shall remain as agoing concern. Apart from that the Resolution Professional shallensure for smooth running of the company as a going concernand the Resolution Professional shall perform the duties as perSection 25 of the I&B Code. Sub- Section (2)(a) of Section 25,the Resolution Professional take immediate custody and controlof all the assets of the Corporate Debtor, including the businessrecords of the Corporate Debtor. Further sub-section 2 (b) ofSection 25 of the I & B Code states that “(b) represent and act on behalf of the corporate debtor withthird parties, exercise rights for the benefit of the corporatedebtor in judicial, quasi- judicial or arbitration proceedings;”

…

Further, the said provision sets out the duty of ResolutionProfessional to preserve and protect the assets of the ‘CorporateDebtor’ and lays down the functions he may perform the same.In view of the duties cast upon the Resolution Professional, theResolution Professional to keep the Corporate Debtor as a goingconcern and filed an application being C.A. (M.B.)- 2954 of 2019before the Adjudicating Authority seeking stay of termination ofnotice and sought direction to the Appellant to continue theFacilities Agreement dated 01.12.2016.

11. The Adjudicating Authority after hearing the parties stayedthe termination of notice and directed the Appellant herein to adhereto the terms of contract without fail. In view of the law, afterinitiation of the CIRP the ‘Corporate Debtor’ shall function andcontinue its business activities. It is the duty of the ResolutionProfessional to keep the Corporate Debtor as a going concern. It AB

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Ais the main objective of the Code to keep the Corporate Debtor asa going concern. The Adjudicating Authority rightly stayed thetermination of notice and there is no illegality in the Order passedby the Adjudicating Authority dated 18.12.2019.”

The judgment of the NCLAT has given rise to the present appeal.

BSubmissions of Counsel

13. Ms Fereshte D Sethna, learned counsel appearing on behalfof the appellant, has made the following submissions:

(i) NCLT has misread the provisions of Section 14 of the IBCCwhich relate to the provision of goods and services to theCorporate Debtor once the moratorium is imposed. In thepresent case, the appellant is availing of the services of theCorporate Debtor, to which Section 14 has no application;

(ii) As a result of the impugned order, the Facilities Agreement,which is a determinable contract has become a non-Dterminable contract, overlooking the mandate of Section 14of the Specific Relief Act 1963;

(iii) The termination notice was not issued to the CorporateDebtor because it was undergoing CIRP but was on accountof the material breaches of the agreement. MultipleEopportunities were given to the Corporate Debtor to remedythe breaches before the termination notice was issued;

(iv) The Facilities Agreement is not the sole contract of theCorporate Debtor, termination of which would lead to itscorporate death. The Corporate Debtor is in the businessFof automotive parts, which is evident from the main objectsof its Memorandum of Association;

(v) The NCLT under Section 60 (5) (c) of the IBC cannotinvoke its residuary powers where there is a patent lack ofjurisdiction. IBC does not permit a statutory override of allGcontracts entered with the Corporate Debtor. A third partyhas a contractual right of termination;

(vi) The duty of the RP under Section 25 of the IBC is notdeterminative of the jurisdiction of the NCLT. Such a dutycannot be stretched to convert a determinable commercialH

contract into a non-terminable contract, forcing a contractingparty to pay for deficient services that it is unwilling to avail;and

(vii) In Gujarat Urja Vikas v. Amit Gupta & Ors.[9], this Courthad injuncted a third party from terminating its contractwith the corporate debtor because there were concurrentfindings of the NCLT and NCLAT holding that the contractin question was the sole contract of the corporate debtor,and the termination of the contract by the third party wasmerely on the ground of initiation of CIRP without therebeing any contractual default on part of the corporate debtor.

14. Ms Udhita Singh, the learned counsel appearing on behalf ofthe RP, has urged that:

(i) NCLT is vested with the jurisdiction under Section 60(5)(c)of the IBC to adjudicate issues relating to fact or law inrespect of a company undergoing CIRP;

(ii) The appellant’s argument that the contractual dispute canbe decided only through arbitration and the provisions ofthe Indian Contract Act 1872 and Specific Relief Act 1963are attracted is incorrect. Section 238 of the IBC has anoverriding effect over other laws. This Court in AshokaMarketing v. PNB[10] has held that two special lawscontaining non-obstante clauses must be interpretedharmoniously by looking at the purpose of the laws. Further,this Court has observed that a special law enacted at alater date prevails over the earlier special law. Thus, theprovisions of the IBC would apply to the present dispute;

(iii) In Gujarat Urja (supra), this Court has held that theresiduary jurisdiction of the NCLT under Section 60(5)(c)of the IBC provides it a wide discretion to adjudicatequestions of law or fact arising from or in relation to theinsolvency resolution proceedings. It was further held thatSection 14 of the IBC is not exhaustive of the grounds ofjudicial intervention contemplated under the IBC otherwiseSection 60(5)(c) would be rendered otiose. One such ground 9 (2021) 7 SCC 209; “Gujarat Urja”

10 (1990) 4 SCC 406

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of intervention is when the status of the Corporate Debtoras a going concern is in jeopardy. Thus, the NCLT has thepower to exercise its jurisdiction under Section 60(5)(c) ofthe IBC to ensure that the Corporate Debtor survives as agoing concern; A

B(iv)The Corporate Debtor was not given a thirty days’ noticeto cure the breach in terms of Clause 11(b) of the FacilitiesAgreement. The termination notice refers to a notice dated3 October 2018, which has not been placed on record. Whilea letter dated 11 October 2018 was received by theCorporate Debtor alleging deficiencies, those were curedCby the end of October 2018. This is evinced by the fact thatafter October 2018, no communication, except those dated19 November 2018 and 3 February 2019, were received bythe Corporate Debtor. The Corporate Debtor had rectifiedany minor deficiencies that were brought to its notice byDthe appellant promptly. Thus, the allegation that there werematerial breaches of the agreement by the Corporate Debtoris incorrect;

(v) The appellant became aware that CIRP has been initiatedagainst the Corporate Debtor and had immediatelyEterminated the agreement thereafter; and

(vi) The Corporate Debtor had two main sources of income – adealership of Maruti and the agreement with the appellant.The dealership was terminated before the initiation of CIRP,thus the only existing source of income as of the date ofFinitiation of CIRP was the Facilities Agreement, for whichthe Corporate Debtor has incurred a substantial capitalexpenditure of Rs. 8.35 crores. The termination of theagreement would adversely affect the Corporate Debtor.In Gujarat Urja (supra), this Court has held that thetermination of an agreement which is the main source ofGrevenue generation of the Corporate Debtor is against theobjective of the IBC which envisages that the CorporateDebtor should be preserved as a going concern.

Analysis

15. The rival contentions will now be considered.

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16. Based on the appeal, two issues have arisen for considerationbefore this Court:

(i) Whether the NCLT can exercise its residuary jurisdictionunder Section 60(5)(c) of the IBC to adjudicate upon thecontractual dispute between the parties; and

(ii) Whether in the exercise of such a residuary jurisdiction, itcan impose an ad-interim stay on the termination of theFacilities Agreement.

17. Clause 12 (d) of the Facilities Agreement provides that thedisputes between the parties shall be a subject matter of arbitration. Theclause reads thus:

“12 Miscellaneous

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d) Governing Law, Dispute Resolution and Jurisdiction:- ThisAgreement shall be governed and interpreted in accordance withlaws of India.

In case of disputes or differences between the Parties hereof,shall be subject matter of arbitration under the Arbitration andConciliation Act 1996 and any subsequent related amendmentsthere to, unless settled amicably between the Parties hereto, bereferred to arbitration and such arbitration shall be conducted inaccordance with the rules of arbitration of the Bombay Chamberof Commerce and Industry (“BCCI”), which rules as modifiedfrom time to time, are deemed to be incorporated by referenceinto this clause (the “Arbitration Rules”) by an arbitration panelcomprised of a sole arbitrator.

The arbitration panel as referred to above shall be appointed bythe BCCI. The arbitration panel shall deliver the award in thearbitration proceedings within three (3) months from reference ofany dispute to arbitration. The venue of arbitration shall be Mumbai,India.

The Parties agree that the award passed by the arbitration panelshall be final and binding upon the Parties, and that the Partiesshall not be entitled to commence or maintain any action in anycourt of law in respect of any matter in dispute arising from or in A

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Arelation to the Agreement, except for the enforcement of an arbitralaward passed by an arbitration panel pursuant to this clause.”

18. Section 238 provides that the IBC overrides other laws,including any instrument having effect by virtue of law. The text of Section238 stipulates thus:

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“Section 238 - Provisions of this Code to override other laws The provisions of this Code shall have effect, notwithstandinganything inconsistent therewith contained in any other law for thetime being in force or any instrument having effect by virtue ofany such law.”

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19. In Indus Biotech (P) Ltd. v. Kotak India Venture(Offshore) Fund, a three judge Bench of this Court, of which one of uswas a part (Justice AS Bopanna), held that Section 238 of the IBCoverrides all other laws. This Court was considering whether a referenceto arbitration made under Section 8 of the Arbitration and ConciliationAct 1996 in terms of the agreement between the parties would affectthe jurisdiction of the NCLT to examine an application filed under Section7 of the IBC. This Court observed thus:

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“27. As noted, the issue which is posed for our consideration isarising in a petition filed under Section 7 of IB Code, before it isEadmitted and therefore not yet an action in rem. In such application,the course to be adopted by the adjudicating authority if anapplication under Section 8 of the 1996 Act is filed seekingreference to arbitration is what requires consideration. Theposition of law that the IB Code shall override all otherFlaws as provided under Section 238 of the IB Code needsno elaboration. In that view, notwithstanding the fact that thealleged corporate debtor filed an application under Section 8 ofthe 1996 Act, the independent consideration of the same dehorsthe application filed under Section 7 of IB Code and materialsproduced therewith will not arise. The adjudicating authority isGduty-bound to advert to the material available before him as madeavailable along with the application under Section 7 of IB Codeby the financial creditor to indicate default along with the versionof the corporate debtor. This is for the reason that, keeping inperspective the scope of the proceedings under the IB Code andthere being a timeline for the consideration to be made by the E

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adjudicating authority, the process cannot be defeated by acorporate debtor by raising moonshine defence only to delay theprocess. In that view, even if an application under Section 8of the 1996 Act is filed, the adjudicating authority has aduty to advert to contentions put forth on the applicationfiled under Section 7 of IB Code, examine the materialplaced before it by the financial creditor and record asatisfaction as to whether there is default or not.While doingso the contention put forth by the corporate debtor shallalso be noted to determine as to whether there is substancein the defence and to arrive at the conclusion whether thereis default. If the irresistible conclusion by the adjudicatingauthority is that there is default and the debt is payable,the bogey of arbitration to delay the process would not arisedespite the position that the agreement between the partiesindisputably contains an arbitration clause.”

20. In Gujarat Urja (supra), a two judge Bench of this Court, ofwhich one of us was a part (Justice DY Chandrachud), held that a powerpurchase agreement, which is a bilateral commercial contract, is an‘instrument’ under Section 238. Notably, the power purchase agreementprovided that the disputes between the parties relating to the agreementwould be entertained by Gujarat Electricity Regulatory Commission. Butsince Section 238 provides an overriding effect to the provisions of theIBC over any instrument having effect by law, it was held that the NCLThad jurisdiction over the dispute which arose in the context of insolvencyproceedings. The relevant extract of the judgment is set out below:

“82. It has been urged on behalf of the appellant that Section 238does not apply to a bilateral commercial contract between acorporate debtor and a third party and only applies to statutorycontracts or instruments entered into by operation of law. Thebasis of this submission is that the word “instrument” should begiven a meaning ejusdem generis to the provision “contained inany other law”. We do not find force in this argument. Section238 does not state that the “instrument” must be entered into byoperation of law; rather it states that the instrument has effect byvirtue of any such law. In other words, the instrument need not bea creation of a statute; it becomes enforceable by virtue of a law.

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ATherefore, we are inclined to agree with the view taken by NCLT.Section 238 is prefaced by a non obstante clause. NCLT’sjurisdiction could be invoked in the present case becausethe termination of PPA was sought solely on the groundthat the corporate debtor had become subject to aninsolvency resolution process under IBC.”B(emphasis added)

21. Section 60(5)(c) grants residuary jurisdiction to the NCLT toadjudicate any question of law or fact, arising out of or in relation to theinsolvency resolution of the Corporate Debtor. Section 60(5)(c) providesCthus:

“Section 60 - Adjudicating Authority for corporate persons

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(5) Notwithstanding anything to the contrary contained in any otherDlaw for the time being in force, the National Company LawTribunal shall have jurisdiction to entertain or dispose of—

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(c) any question of priorities or any question of law or facts, arisingout of or in relation to the insolvency resolution or liquidationEproceedings of the corporate debtor or corporate person underthis Code.”

Clause 12 (d) of the Facilities Agreement provides that any disputebetween the parties relating to the agreement could be the subject matterof arbitration. However, the Facilities Agreement being an ‘instrument’Funder Section 238 of the IBC can be overridden by the provisions of theIBC. In terms of Section 238 and the law laid down by this Court, theexistence of a clause for referring the dispute between parties toarbitration does not oust the jurisdiction of the NCLT to exercise itsresiduary powers under Section 60(5)(c) to adjudicate disputes relatingto the insolvency of the Corporate Debtor.G

22. The appellant has contested the reliance of the NCLAT onSection 25 of the IBC to hold that the RP can invoke the jurisdiction ofthe NCLT to stay the termination of the Facilities Agreement in pursuanceof its duty to preserve the Corporate Debtor as a going concern. Thelearned counsel has submitted that the jurisdiction of the NCLT cannotH

be determined based on the duties of the RP. Reliance was placed onthe judgment of this Court in Embassy Property Developments(Private) Limited v. State of Karnataka[11], where this Court held thatthe duties of the RP are entirely different from the jurisdiction and powersof the NCLT. While the duty of the RP and the jurisdiction of the NCLTcannot be conflated, in Gujarat Urja (supra), this Court has clarifiedthat the RP can approach the NCLT for adjudication of disputes whichrelate to the insolvency resolution process. But when the dispute arisesdehors the insolvency of the Corporate Debtor, the RP must approachthe relevant competent authority (para 72). We have discussed whetherthere is a nexus between the termination notice and the insolvencyresolution proceedings in the subsequent paragraphs.

23. It was also urged on behalf of the appellant that the NCLTand NCLAT have re-written the agreement changing its nature from adeterminable contract to a non-terminable contract overlooking themandate of Section 14[12 ]of the Specific Relief Act 1963. It is a settledposition of law that IBC is a complete code and Section 238 overrides allother laws. The NCLT in its residuary jurisdiction is empowered to staythe termination of the agreement if it satisfies the criteria laid down bythis Court in Gujarat Urja (supra). In any event, the intervention by theNCLT and NCLAT cannot be characterized as the re-writing of thecontract between the parties. The NCLT and NCLAT are vested withthe responsibility of preserving the Corporate Debtor’s survival and canintervene if an action by a third party can cut the legs out from under theCIRP.

24. On behalf of the appellant, it has been further submitted thatthe NCLAT misread Section 14 of the IBC, which has no application tothe present case. Section 14 of the IBC provides thus:

“Section 14 - Moratorium

11 (2020) 13 SCC 308

12 “Section 14 - Contracts not specifically enforceable The following contracts cannot be specifically enforced, namely:—

(a) where a party to the contract has obtained substituted performance of contract inaccordance with the provisions of section 20; (b) a contract, the performance of which involves the performance of a continuous dutywhich the court cannot supervise;

(c) a contract which is so dependent on the personal qualifications of the parties thatthe court cannot enforce specific performance of its material terms; and (d) a contract which is in its nature determinable.”

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SUPREME COURT REPORTS

(1) Subject to provisions of sub-sections (2) and (3), on theinsolvency commencement date, the Adjudicating Authority shallby order declare moratorium for prohibiting all of the following,namely:—

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(a) the institution of suits or continuation of pending suits orBproceedings against the corporate debtor including execution ofany judgment, decree or order in any court of law, tribunal,arbitration panel or other authority; (b) transferring, encumbering, alienating or disposing of by thecorporate debtor any of its assets or any legal right or beneficialCinterest therein;

(c) any action to foreclose, recover or enforce any security interestcreated by the corporate debtor in respect of its property includingany action under the Securitisation and Reconstruction of FinancialAssets and Enforcement of Security Interest Act, 2002 (54 of2002); D

(d) the recovery of any property by an owner or lessor wheresuch property is occupied by or in the possession of thecorporate debtor.

Explanation.—For the purposes of this sub-Section, it is herebyEclarified that notwithstanding anything contained in any other lawfor the time being in force, a license, permit, registration, quota,concession, clearances or a similar grant or right given by theCentral Government, State Government, local authority, sectoralregulator or any other authority constituted under any other lawFfor the time being in force, shall not be suspended or terminatedon the grounds of insolvency, subject to the condition that there isno default in payment of current dues arising for the use orcontinuation of the license, permit, registration, quota, concession,clearances or a similar grant or right during the moratorium period;

(2) The supply of essential goods or services to theGcorporate debtor as may be specified shall not be terminatedor suspended or interrupted during moratorium period.

(2A) Where the interim resolution professional or resolutionprofessional, as the case may be, considers the supply of goods orservices critical to protect and preserve the value of the corporateH

debtor and manage the operations of such corporate debtor as agoing concern, then the supply of such goods or services shall notbe terminated, suspended or interrupted during the period ofmoratorium, except where such corporate debtor has not paiddues arising from such supply during the moratorium period or insuch circumstances as may be specified.

(3) The provisions of sub-section (1) shall not apply to—

(a) such transactions, agreements or other arrangements as maybe notified by the Central Government in consultation with anyfinancial sector regulator or any other authority; (b) a surety in a contract of guarantee to a corporate debtor.

(4) The order of moratorium shall have effect from the date ofsuch order till the completion of the corporate insolvency resolutionprocess:

Provided that where at any time during the corporate insolvencyresolution process period, if the Adjudicating Authority approvesthe resolution plan under sub-section (1) of section 31 or passesan order for liquidation of corporate debtor under section 33, themoratorium shall cease to have effect from the date of suchapproval or liquidation order, as the case may be.”

Admittedly, the appellant is neither supplying any goods or servicesto the Corporate Debtor in terms of Section 14 (2) nor is it recoveringany property that is in possession or occupation of the Corporate Debtoras the owner or lessor of such property as envisioned under Section 14(1) (d). It is availing of the services of the Corporate Debtor and is usingthe property that has been leased to it by the Corporate Debtor. Thus,Section 14 is indeed not applicable to the present case. However, inGujarat Urja (supra) it was held that the NCLT’s jurisdiction is notlimited by Section 14 in terms of the grounds of judicial interventionenvisaged under the IBC. It can exercise its residuary jurisdiction underSection 60(5)(c) to adjudicate on questions of law and fact that relate toor arise during an insolvency resolution process. This Court observed:

“91. The residuary jurisdiction of NCLT under Section 60(5)(c)of IBC provides it a wide discretion to adjudicate questions of lawor fact arising from or in relation to the insolvency resolution A

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Aproceedings. If the jurisdiction of NCLT were to be confined toactions prohibited by Section 14 of IBC, there would have beenno requirement for the legislature to enact Section 60(5)(c) ofIBC. Section 60(5)(c) would be rendered otiose if Section 14 isheld to be exhaustive of the grounds of judicial interventioncontemplated under IBC in matters of preserving the value of theBcorporate debtor and its status as a “going concern”. We hastento add that our finding on the validity of the exercise of residuarypower by NCLT is premised on the facts of this case. We are notlaying down a general principle on the contours of the exercise ofresiduary power by NCLT. However, it is pertinent to mentionCthat NCLT cannot exercise its jurisdiction over matters dehorsthe insolvency proceedings since such matters would fall outsidethe realm of IBC. Any other interpretation of Section 60(5)(c)would be in contradiction of the holding of this Court in SatishKumar Gupta [Essar Steel (India) Ltd. (CoC) v. Satish KumarGupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443].”D25. Before the initiation of the CIRP, the appellant had on multipleinstances communicated to the Corporate Debtor that there weredeficiencies in its services. The Corporate Debtor was put on noticethat the penalty and termination clauses of the Facilities Agreement maybe invoked. This is evident from the appellant’s communications dated 1EAugust 2018, 17 September 2018, 1 October 2018 and 11 October 2018.In its email dated 13 October 2018 the appellant specifically noted thatthe housekeeping staff being provided by the Corporate Debtor wasinadequate. The appellant was apparently constrained to deploy its ownstaff for housekeeping, evinced from its email dated 19 November 2018.FThe Corporate Debtor has admitted that the appellant was using its ownhousekeeping staff and deducting the costs from the invoice. Theappellant again intimated the Corporate Debtor to change faulty batteriesof the UPS and provide cleaning products in its email dated 3 February2019. The termination notice dated 10 June 2019 also clearly lays downthe deficiencies in the services of the Corporate Debtor. The terminationGnotice enumerated the following deficiencies:

“1. Not maintaining the minimum level of skillset of personal onexam and non-exam days which is non-compliance as perAnnexure B, Table C, and also a process violation.

2. Furnishing and Designing guidelines (Annexure B, Table D)Hnot being adhered a) Furniture broken condition

b) Temperature and ventilation in labs, server room and UPS roomsnot being maintained

c) Deploying housing staff

d) Cleanliness and up keeping of the center

3. Branding and Navigation not in synchronization with AnnexureF of facility agreement.”

26. In Gujarat Urja (supra), the contract in question wasterminated by a third party based on an ipso facto clause, i.e., the factof insolvency itself constituted an event of default. It was in that context,this Court held that the contractual dispute between the parties arose inrelation to the insolvency of the corporate debtor and it was amenable tothe jurisdiction of the NCLT under Section 60(5)(c). This Court observedthat “….NCLT has jurisdiction to adjudicate disputes, which arisesolely from or which relate to the insolvency of the corporatedebtor… The nexus with the insolvency of the corporate debtormust exist” (para 69). Thus, the residuary jurisdiction of the NCLT cannotbe invoked if the termination of a contract is based on grounds unrelatedto the insolvency of the Corporate Debtor.

27. It is evident that the appellant had time and again informed theCorporate Debtor that its services were deficient, and it was falling foulof its contractual obligations. There is nothing to indicate that thetermination of the Facilities Agreement was motivated by the insolvencyof the Corporate Debtor. The trajectory of events makes it clear that thealleged breaches noted in the termination notice dated 10 June 2019were not a smokescreen to terminate the agreement because of theinsolvency of the Corporate Debtor. Thus, we are of the view that theNCLT does not have any residuary jurisdiction to entertain the presentcontractual dispute which has arisen dehors the insolvency of theCorporate Debtor. In the absence of jurisdiction over the dispute, theNCLT could not have imposed an ad-interim stay on the terminationnotice. The NCLAT has incorrectly upheld the interim order of the NCLT.

28. While in the present case, the second issue formulated by thisCourt has no bearing, we would like to issue a note of caution to theNCLT and NCLAT regarding interference with a party’s contractualright to terminate a contract. Even if the contractual dispute arises in A

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Arelation to the insolvency, a party can be restrained from terminating thecontract only if it is central to the success of the CIRP. Crucially, thetermination of the contract should result in the corporate death of theCorporate Debtor. In Gujarat Urja (supra), this Court held thus:

“176. Given that the terms used in Section 60(5)(c) are of wideBimport, as recognised in a consistent line of authority, we hold thatNCLT was empowered to restrain the appellant from terminatingPPA. However, our decision is premised upon a recognition ofthe centrality of PPA in the present case to the success of CIRP,in the factual matrix of this case, since it is the sole contract forthe sale of electricity which was entered into by the corporateCdebtor. In doing so, we reiterate that NCLT would have beenempowered to set aside the termination of PPA in this case becausethe termination took place solely on the ground of insolvency. Thejurisdiction of NCLT under Section 60(5)(c) of IBC cannot beinvoked in matters where a termination may take place on groundsDunrelated to the insolvency of the corporate debtor. Even morecrucially, it cannot even be invoked in the event of a legitimatetermination of a contract based on an ipso facto clause like Article9.2.1(e) herein, if such termination will not have the effect ofmaking certain the death of the corporate debtor. As such, in allfuture cases, NCLT would have to be wary of setting aside validEcontractual terminations which would merely dilute the value ofthe corporate debtor, and not push it to its corporate death byvirtue of it being the corporate debtor’s sole contract (as was thecase in this matter’s unique factual matrix).

177. The terms of our intervention in the present case are limited.FJudicial intervention should not create a fertile ground for the revivalof the regime under Section 22 of SICA which provided forsuspension of wide-ranging contracts. Section 22 of the SICAcannot be brought in through the back door. The basis of ourintervention in this case arises from the fact that if we allow the termination of PPA which is the sole contract of theGcorporate debtor, governing the supply of electricity whichit generates, it will pull the rug out from under CIRP, makingthe corporate death of the corporate debtor a foregoneconclusion.”

(emphasis supplied)

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29. The narrow exception crafted by this Court in Gujarat Urja(supra) must be borne in mind by the NCLT and NCLAT even whileexamining prayers for interim relief. The order of the NCLT dated 18December 2019 does not indicate that the NCLT has applied its mind tothe centrality of the Facilities Agreement to the success of the CIRPand Corporate Debtor’s survival as a going concern. The NCLT hasmerely relied upon the procedural infirmity on part of the appellant in theissuance of the termination notice, i.e., it did not give thirty days’ noticeperiod to the Corporate Debtor to cure the deficiency in service. TheNCLAT, in its impugned judgment, has averred that the decision of theNCLT preserves the ‘going concern’ status of the Corporate Debtor butthere is no factual analysis on how the termination of the FacilitiesAgreement would put the survival of the Corporate Debtor in jeopardy.

30. Admittedly, this Court has clarified the law on the presentsubject matter in Gujarat Urja (supra) after the pronouncements of theNCLT and NCLAT. Going forward, the exercise of the NCLT’s residuarypowers should be governed by the above decision.

31. We accordingly set aside the judgment of the NCLAT dated24 June 2020. The proceedings initiated against the appellant shall standdismissed for absence of jurisdiction. The appeal is disposed of in theabove terms with no order as to costs.

32. Pending applications, if any, are disposed of.

Divya Pandey

Appeal disposed of.

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